If you want to invest in dividend stocks, chasing high returns is not always a recommended strategy. Companies with juicy returns are only worth investing in if they can support their payouts. We’ve seen recently that even otherwise solid income stocks with incredible returns can resort to cutting their dividends; that’s exactly what happened Walgreens Boots Alliance And Reliance on medical properties.
However, not all high-yield stocks will suffer this fate. Here’s one that probably won’t: Pfizer (NYSE:PFE). Although the drugmaker has experienced some problems lately, long-term investors should stick with the stock. Let’s find out why.
Beyond the pandemic
Before the pandemic, Pfizer was dealing with an aging product portfolio and (at best) sluggish sales growth. Things only got worse when a postmarketing study in early 2021 found that one of the company’s products called Xeljanz, an immunosuppressant, had an increased risk of cardiovascular events and cancer compared to another class of immunologic drugs. warning for Xeljanz.
These issues (and others) explain why Pfizer decided to shake things up, shedding slower-growing units and focusing on its biopharmaceutical business, and looking for deals.
The company has struck gold with its decision to enter the COVID-19 vaccine market. In addition to the stratospheric sales Pfizer generated from its coronavirus-related portfolio – becoming the first company in the industry to reach $100 billion in annual sales – this success allowed Pfizer to rejuvenate its pipeline and lay a foundation for a much more promising future. As they say, progress is a slow process, but for Pfizer it’s happening.
Last year, Pfizer had a historic series of brand new product approvals. The company will likely continue on this path this year, even if it may not be as impressive as in 2023. Pfizer also acquired Seagen, an oncology specialist with an incredibly deep pipeline, for $43 billion. This new partnership could lead to several blockbuster products, given Seagen’s sheer innovative potential and Pfizer’s much greater resources.
It’s easy to focus on Pfizer’s current financial results, which don’t look strong. In the first quarter, the company’s revenue of $14.9 billion fell 20% year over year. Pfizer’s adjusted earnings per share of $0.82 was down 33% from the first quarter of 2023. However, Pfizer’s performance in 2021 and 2022 was always going to be difficult to track. Excluding the company’s COVID-19 portfolio, Pfizer’s revenue rose a very respectable 11% year over year.
The COVID-19 market remains somewhat unpredictable. Once things stabilize on that front, Pfizer’s revenues will start moving in the right direction, especially as newer products become increasingly important. Pfizer isn’t just a “pandemic stock.” The drugmaker’s prospects outside this market still look excellent.
Trust the process
Pfizer may not bounce back immediately, but that shouldn’t matter much to investors in the long run. This is a case where patience will be rewarded. Pfizer is an innovative company that offers an extensive portfolio of products that no one wants to cut corners on. What about the company’s dividend? Pfizer’s forward dividend yield currently stands at over 5.87%. It has increased its payouts by 61.54% over the past decade. But the drugmaker’s cash payout ratio appears unsustainable at 182.5%.
This is probably because the company has made a series of acquisitions in recent years. However, management doesn’t seem concerned. During the company’s first quarter earnings conference call, CFO Dave Denton said: “Our strategy is to maintain and grow our dividend over time, reinvesting in our business at appropriate levels of financial return, and making value-enhancing share buybacks after share buybacks. brighten up our balance sheet.”
Pfizer increased its payout during the first quarter, a sign that the company isn’t just paying lip service to investors. The dividend program will be fine in my opinion as both revenue and net profit growth are back on track. Those who choose to reinvest that dividend will see their returns increase in the long term.
Don’t ignore Pfizer just because of its current poor financial performance. The pharmaceutical giant has a lot to offer investors looking for long-term income.
Should you invest €1,000 in Pfizer now?
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Prosper Junior Bakiny has no position in any of the shares mentioned. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool has a disclosure policy.
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